Business Combinations

9 Months Ended

Sep. 30, 2011

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Business Combinations

Consideration paid by the Company for the businesses it purchases is allocated to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. Recognized goodwill pertains to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce. During the nine months ended September 30, 2011, Ebix completed the acquisition of ADAM, Inc. ("ADAM") as more fully described below.

On February 7, 2011 Ebix closed the merger of Atlanta, Georgia based ADAM with a wholly owned subsidiary of Ebix. Under the terms of the merger agreement, all of the ADAM shareholders received, at a fixed exchange ratio, 0.3122 shares of Ebix common stock for every share of ADAM common stock. Ebix issued approximately 3.65 million shares of Ebix common stock with a fair value of $87.5 million pursuant to the merger. This issuance of shares increased the Company's diluted common share count to approximately 42.07 million shares as of acquisition date. In addition Ebix paid approximately $944 thousand in cash for unexercised ADAM stock options. ADAM is a leading provider of health information and benefits technology solutions in the United States. $16.9 million of Adam's operating revenues recognized since February 7, 2011 are included in the Company's revenues reported on its condensed consolidated statement of income for the nine months ended September 30, 2011. Due to the fact that many of ADAM specific functions were immediately integrated into Ebix's operations it is neither practical nor feasible to separately track and disclose specific earnings from this business combination after the acquisition date. The revenue derived from ADAM's portfolio of products and services is included in the Company's Exchange division. The Company initially accounted for this acquisition by recording $15.4 million of intangible assets pertaining to customer relationships, $2.1 million of intangible assets pertaining to acquired technology, and $2.0 million of intangible assets pertaining to acquired trademarks and the excess purchase price of $65.6 million to goodwill. During the 2nd quarter the Company completed its purchase accounting for the ADAM acquisition for certain tax related matters, resulting in a $6.3 million increase to deferred tax assets and a corresponding reduction to goodwill, bringing the recognized goodwill amount down to $59.3 million.

Furthermore and unrelated to the ADAM acquisition, during the 2nd and 3rd quarters of 2011 the Company recorded $4.2 million of reductions to previously recorded contingency based earn-out accruals pertaining to business acquisitions made during 2010. The Company reduced these estimated accruals after analyzing the ongoing performance of these businesses since they were acquired and considering information available at the date of the business acquisitions which accounted for $1.1 million of the reduction and was recorded as a decrease to goodwill, and information currently available which accounted for $3.1 million of the reduction and was recorded as a decrease to general and administrative expenses.

The unaudited pro forma financial information below, which specifically pertains to the ADAM acquisition, is provided for informational purposes only and does not project the Company's expected results of operations for any future period. No effect has been given in this pro forma information for future synergistic benefits that may be realized as a result of combining the two companies or costs that may be incurred in integrating their operations. The pro forma financial information below includes nine months of pro forma results for ADAM as if it had been acquired on January 1, 2010, whereas the Company's reported financial statements for the nine months ended September 30, 2011 excludes ADAM's financial results for the period January 1, 2011 thru February 6, 2011 and thus only include the actual financial results of ADAM since the effective date of its acquisition on February 7, 2011. The Company's historical reported financial statements for the nine months ended September 30, 2010 include no financial results of ADAM. The unaudited pro forma diluted earnings per share below reflects a $0.25 per share increase from $1.07 per share for the nine months ended September 30, 2010 to $1.32 per share for the nine months ended September 30, 2011.

	Nine Months Ending September 30, 2011				Nine Months Ending September 30, 2010
	As Reported		Pro Forma		As Reported		Pro Forma
	(unaudited)				(unaudited)
	(In thousands)
Revenue	$	124,919	$	127,493	$	97,091	$	117,439
Net Income	$	54,048	$	55,323	$	43,075	$	45,968
Basic EPS	$	1.41	$	1.43	$	1.24	$	1.20
Diluted EPS	$	1.31	$	1.32	$	1.10	$	1.07

The pro forma figures for both periods presented above have been adjusted to remove one-time nonrecurring expenses directly associated with the acquisition of ADAM (specifically a $1.39 million investment banking fee and $400 thousand employee severance costs). These combined expenses of $1.79M were included in the as reported amounts for the nine months ending September 30, 2011. All pro forma figures above reflect the removal of interest expense related to ADAM's operations, as ADAM's debt was fully repaid as a condition precedent to the closing of the acquisition; this resulted in a reduction in the pro forma expenses of $258 thousand in 2010 and $38 thousand in 2011. Additional expense related to amortization of acquired intangible assets has been included in the pro forma's for both years which resulted in additional expense of $1.2 million in 2010 and $150 thousand in 2011.

As a result of the 2011 acquisition of ADAM, certain qualified costs were capitalized as part of goodwill. These costs were $75 thousand for legal fees related to registering Ebix stock tendered as purchase consideration, and $665 thousand of officer severance costs associated with the terms of pre-existing employment contracts.